Billionaire Salim Seeks Sweet Philippine Deals

Anthoni Salim, chairman of First Pacific Co. Salim, who is also chairman of Salim Group which holds a 45 percent stake in First Pacific, has a net worth of $5.5 billion, according to Bloomberg Billionaires Index. Photographer: Yuriko Nakao/Bloomberg

May 26 (Bloomberg) -- Billionaire Anthoni Salim’s First
Pacific Co. is seeking to buy sugar companies in the Philippines
to expand its footprint in Southeast Asia and tap opportunities
from a free-trade agreement in the region.

Pressure for sugar companies to become more competitive --
and consolidate -- is growing ahead of a reduction in regional
sugar tariffs next year, First Pacific Chief Executive Officer
Manuel Pangilinan said in an interview in Manila, without
identifying possible targets.

The margins of Philippine sugar refiners are being squeezed
because of their productions costs, creating opportunities for
companies that can bring greater efficiency, according to Aida
Ignacio, deputy administrator of the Philippines Sugar
Regulatory Administration. First Pacific owns stakes in the
nation’s biggest producer of raw sugar, Roxas Holdings Inc., and
largest refiner, Victorias Milling Co.

“We are small compared with our regional competitors, and
you have to consolidate if you want to be competitive,”
Pangilinan said. “We are open to acquiring other millers and
refiners. It is an investment that we’d like to grow.”

As part of a free-trade agreement among members of the
Association of Southeast Asian Nations, the tariff on sugar
imported among member states will be halved to 5 percent next
year. It was 48 percent in 2010. Philippine refiners will face
intensified competition from those in Thailand, the world’s
largest sugar exporter after Brazil.

Production Costs

The cost of producing sugar in the Philippines is about
1,000 pesos ($23) per 50 kilogram bag, according to Ignacio. The
average price of white sugar this year on NYSE Liffe in London
has been $456.30, according to data compiled by Bloomberg. That
equates to $22.80 per 50 kilos.

The Philippines has 28 mills and 11 refiners, according to
Ignacio. Mills make both raw and unrefined sugar, while
refineries make only white sugar.

“The industry expects some mills and refiners may consider
consolidation because they can’t afford the investments” to
modernize, Ignacio said. “Upgrades will bring down production
costs and increase the recovery rate of sugar, which is lower
than in other countries,” she said.

About 90 percent of sugarcane output in the country comes
from farmers with a planted area of less than 5 hectares,
Ignacio said.

“There are inefficiencies in the system that you try to
fix and in the process make a profit,” Pangilinan said.
“That’s the whole point in business.”

First Pacific, based in Hong Kong, has been building its
assets in the industry in the Philippines.

Roxas, Victorias Milling

The company controls 34 percent of Roxas Holdings, and this
year it acquired 7.5 percent of Victorias Milling. Shares of
Roxas Holdings rose 0.9 percent to 7.69 pesos at the close in
Manila trading. Victorias Milling climbed 2.8 percent to 5.17
pesos, its highest close since 1995. The benchmark Philippine
Stock Exchange Index index fell 0.3 percent.

First Pacific had $2.48 billion in cash and short-term
investments as of Dec. 31, according to data compiled by
Bloomberg. Salim, who is also chairman of Salim Group which
holds a 45 percent stake in First Pacific, has a net worth of
$5.5 billion, according to Bloomberg Billionaires Index.

The positions in sugar companies are in addition to
holdings across other industries in the nation, where it started
investing in the 1980s. First Pacific owns stakes in Philippine
Long Distance Telephone Co., Philex Mining Corp. and Metro
Pacific Investments Corp.

‘Inefficient’

“The Philippine sugar industry will probably give a better
yield because our agriculture is known to be more inefficient
than other countries in the region,” said James Lago, head of
research at PCCI Securities Brokers Corp. “Pangilinan views
inefficiency as an opportunity for growth just like what he has
done in his other acquisitions in the Philippines. They squeeze
a good amount of income growth by bringing down inefficiency.”

The company is looking to expand its foods business as
consumer spending in the Southeast Asia is rising, Lago said.
Philippine sugar can supply the group’s food units in Indonesia,
he said.

Global sugar demand will reach a record 167.5 million tons
in the year ending September, extending two decades of increases
as consumption has surged 48 percent, U.S. Department of
Agriculture data show.

First Pacific along with Singapore-based Wilmar
International Ltd. said May 15 that they raised their takeover
offer for Sydney-based Goodman Fielder Ltd., the maker of Meadow
Fresh yogurt, Olive Grove margarine and Wonder White bread.